From Budapest Via Birmingham: Meet The Hungarian Tycoon Who Plans To Shake Up UK BTR
Despite a growing presence in Atlanta, Georgia, and a long dalliance with the U.S. single family rental sector, Gabor Andras Futo is not well known in the Anglo-American property world. But that could be about to change.
The founder of Budapest-based commercial developer Futureal and of residential developer Cordia has acquired a £600M development pipeline in the UK. It is just the start of something very big.
In September 2020 Cordia International acquired Marcus Hawley’s Birmingham-based build-to-rent developer Blackswan Property in a deal funded by the National Bank of Hungary.
Cordia’s UK debut follows similar charges into Polish and German private rented sector residential, and a long-term engagement with single-family rentals in Atlanta and a handful of other U.S. cities.
Just weeks after landing in Birmingham, newly minted vehicle Cordia Blackswan agreed a funding deal with Legal & General for Birmingham’s £100M Hockley Mills build-to-rent development.
Cordia Blackswan has a £600M development pipeline including a series of projects predominantly in the city’s Jewellery Quarter. It amounts to around 2,500 units.
This is small change for a developer like Futo, but it is part of a much bigger higher-stakes game. That is because the UK debut sees Futo’s property empire take another step toward becoming a significant name in European residential development.
With assets of £630M and a strong revenue flow, Cordia International is already one of Central Europe’s most sizeable property propositions. It has more than 40 projects in progress amounting to 7M SF and is part of the wider Futo-owned Futureal Group with projects worth €5B.
Futo is determined to stay put in the Birmingham market and will not expand into London or Manchester until he has exhausted the local opportunities, a strategy that departs from other international entrants to the UK BTR scene.
It is an approach typical of a developer who takes local market knowledge extremely seriously, mixing it with thoughtful, high-level economic thinking.
To see how he works, and what the UK and U.S. markets have in store, turn the clock back to 2004 and head to the Józsefváros district of Budapest.
“This was the biggest slum in the city. Horrible poverty, half the homes had no toilets, there was prostitution and crime,” Futo told Bisnow. “Now it is the sexiest, most successful place in the city, and that is because if you believe in your city centre, and there are great connections and public transport, you have the base for something great.
“But you can’t change a slum by gradual interventions. You need a revolution. You need scale. By mixing uses we could move faster, and different uses complemented each other, and we were lucky to have great architects who created fantastic public space and good public services.”
Today that slum is branded Corvin Promenade, and its mix of retail, residential, office and wellness totals 5.4M SF.
Big gambles require big brains, and Futo — a Harvard-trained economist with a mathematical bent — is an unashamedly big thinker. Tackling the Józsefváros site was regarded by many local observers as a quick road to ruin. By 2008, as the world economy began to crumble, the chances of completing such a project on 90% to 100% leverage looked slim.
Futo remembered the hard-won experience of his Harvard professor, a man who had survived the U.S. slow-motion disaster of the savings and loans crisis in the 1980s and 1990s. “You keep the real estate cycle in mind, because real estate is cyclical and when you see people making money without doing anything, then you know you’re in a bubble," Futo said.
He promptly liquidated £100M-worth of schemes with existing planning permissions, securing his financial position before the disaster struck.
So why invest in the UK, and why do it now? With Brexit still creating uncertainties and the global economy once again in a dark place, this is hardly the moment for risk-taking. Futo’s response is that the risk is mitigated by the intense focus on local knowledge, and that his portfolio needed tilting toward northern and western Europe.
However, he made it clear that the hunt for adequate returns in a low-return world made heading to the UK almost inevitable.
The journey out of Central Europe began in 2013 with the first steps in the creation of a German rental market platform backed by Israeli insurance companies, and a package of single-family rentals in Atlanta, Michigan and Indianapolis, with a heavy bias to Atlanta.
“Cordia was too heavy in Central Europe, which was the reason we pushed into the U.S, Germany, Spain and now into the UK," Futo said. "Yes Brexit is an issue, and so is Scottish independence, but the UK is still a country where the foundations of liberal democracy are strong and the rule of law is unquestionable. And that gives us confidence.
“UK build-to-rent is the hottest thing today. There is tremendous unsatisfied demand in the rental market. And building rental properties broadens our strategy because we can produce investment products. But the trouble with BTR is that it is hard to get into, you need your own local venture, and you need luck. And our luck was meeting Marcus.”
Marcus Hawley began to investigate the UK rental markets more than a decade ago. Sclerotic, poorly run, offering very variable accommodation with a grudging attitude: Hawley was not alone in wondering if a more modern service-oriented offer was viable.
Hawley was a former development manager at innovative boutique residential developer Urban Splash, with a guiding hand in schemes like the Rotunda in central Birmingham. He launched Blackswan to explore the build-to-rent sector in 2009. After offering consultancy to big names who wanted to learn about BTR he moved into development in 2013. The Hockley Mills scheme, recently funded by Legal & General, was among the first.
In early 2020 Cordia was stepping up its search for Northern European opportunities, and the trail took it to Hawley.
“We started talking about some of the schemes Blackswan had going, and it looked like there were more synergies than for just one project. And for me, I’d gone as far as I could go on my own, I needed to partner with a bigger organisation,” Hawley said. “After speaking to Gabor I realised we had the same culture.”
The partnership between Cordia and Blackswan has created a pipeline in excess of £600M gross development value and more than 1,800 homes, an opening gambit in the still-growing Birmingham rental market.
Futo is in no hurry to expand out of Birmingham. “We have enough to do in Birmingham for some time, and once we feel we don’t have enough to do there, we’ll look elsewhere,” Futo said.
More site acquisitions appear to be on the cards, and with Hawley’s existing relationships with planners and city networks to play with, why go elsewhere?
“We have a strong local base in Birmingham, we don’t have that in London. So let's work up a business model, overcome the challenges, do a few good buildings and grow once Birmingham is well established as our base.”
The big picture makes Futo’s incremental approach seem both prudent, and slightly self-denying. After all, this is build-to-rents big moment, why not fill your boots?
“From a European perspective, there’s never been a hotter time for rental housing," he said. "Yields have never been lower, investor interest has never been higher. You see crazy prices paid, and huge rental increases in Germany and elsewhere. It is even questionable what the sense behind it is, with gross yields of maybe 2.5% in some German cities, which is quite amazing."
Figures like these help explain the interest in UK build-to-rent, where Cordia is targeting net Birmingham yields that look appealing at 4-4.5%.
Futo’s concern is that whilst there is plenty of occupier demand for UK BTR, the funding market is sluggish or frozen.
Cordia is focusing its resources on getting the development process started and building up long-term relationships with funders. A mix of equity and bank finance will support growth. Futo does not rule out recourse to British banks but he gives the impression there are smarter options to be found in Germany.
There are clouds on the horizon. A Harvard-educated economist is hardly going to ignore the asset price inflation of the last 17 years, much of it generated by quantitative easing and loose monetary policy. “Inflation risk is the elephant in the porcelain store,” Futo said.
“Everything is priced to death. The biggest risk is that today’s world is an artificial world. If this crazy framework changes then pricing can unravel. Small doses of inflation are good for real estate but too much could change the environment and destroy the world.”
These are grim thoughts and a rather downbeat frame of mind from which to start a new property venture in the UK?
“If you want to do something boring, go to Skanska or somebody like that, but if you want to change the city and be part of an urban revolution, come to us,” Futo said, laughing. And despite the smile, that was probably not a joke.